Operational Risk Capital
71 Pages Posted: 28 Jul 2020 Last revised: 16 Aug 2020
There are 2 versions of this paper
Basel II and Operational Risk
Date Written: July 2020
Abstract
We study the response of banks to the introduction of a new capital requirement relating to operational risk. To isolate the effect of this new regulation on realized operational risk losses, we take advantage of the partial US implementation relative to full European adoption. Operational risk losses are reduced in treated banks. The extent of loss reduction depends upon the measurement approach used to calibrate operational risk capital requirements. Banks with low institutional ownership and those without binding regulatory capital constraints also present significant loss reduction. We link these findings to incentives for improved risk management and governance post treatment.
Keywords: Bank Regulation, Basel II, Measurement Approach, Monitoring, Operational Risk
JEL Classification: G21, G32
Suggested Citation: Suggested Citation